A video explaining Self-Serving Bias by Rolf Dobelli the author of The Art of Thinking Clearly on the IDFC Mutual Fund Youtube Channel.
WHAT IS SELF-SERVING BIAS AND WHY YOU SHOULDN’T BLAME
Do you ever read annual reports, paying particular attention to the CEO’s comments? No? That’s a pity, because there you’ll find countless examples of this next error, which we all fall for at one time or another. For example, if the company has enjoyed an excellent year, the CEO catalogues his indispensable contributions: his brilliant decisions, tireless efforts and cultivation of a dynamic corporate culture. However, if the company has had a miserable year, we read about all sorts of other dynamics: the unfortunate exchange rate, governmental interference, the malicious trade practices of the Chinese, various hidden tariffs, subdued consumer confidence and so on. In short: we attribute success to ourselves and failures to external factors. This is the self-serving bias.
Even if you have never heard the expression, you definitely know the self serving bias from high school. If you got an A, you were solely responsible; the top grade reflected your intelligence, hard work and skill. And if you flunked? The test was clearly unfair.
But grades don’t matter to you any more: perhaps the stock market has taken their place. There, if you make a profit, you applaud yourself. If your portfolio performs miserably, the blame lies exclusively with ‘the market’ (whatever you imply by this) – or maybe that useless investment adviser. I, too, have periods where I’m a power user of the self-serving bias: if my new novel rockets up the bestseller list, I clap myself on the shoulder. Surely this is my best book yet! But, if it disappears in the flood of new releases, it is because the readers simply don’t recognise good literature when they see it. And if critics slay it, it is clearly a case of jealousy.
To investigate this bias, researchers put together a personality test and afterward, allocated the participants good or bad scores at random. Those who got scored highly found the test thorough and fair; low scorers rated it completely useless. So why do we attribute success to our own skill and ascribe failure to other factors? There are many theories. The simplest explanation is probably this: it feels good. Plus, it doesn’t cause any major harm. If it did, evolution would have eliminated it over the past hundred thousand years. But beware: in a modern world with many hidden risks, the self-serving bias can quickly lead to catastrophe. Richard Fuld, the self-titled ‘master of the universe’, might well endorse this. He was the almighty CEO of the investment bank Lehman Brothers until it went bankrupt in 2008. It would not surprise me if he still called himself ‘master of the universe’, blaming government inaction for the bank’s collapse.
In SAT tests, students can score between 200 and 800 points. When asked their results a year later, they tend to boost their scores by around 50 points. Interestingly, they are neither lying nor exaggerating; they are simply ‘enhancing’ the result a little – until they start to believe the new score themselves.
In the building where I live, five students share an apartment. I meet them now and again in the elevator, and I decided to ask them separately how often they take out the trash. One said he did it every second time. Another: every third time. Roommate #3, cursing because his garbage bag had split, reckoned he did it pretty much every time, say 90%. Although their answers should have added up to 100%, these boys achieved an impressive 320%! The five systematically overestimated their roles – and so, are no different to any of us. In married couples, the same thing happens: it’s been shown that both men and women overestimate their contribution to the health of the marriage. Each assumes their input is more than 50%.
So, how can we dodge the self-serving bias? Do you have friends who tell you the truth – no holds barred? If so, consider yourself lucky. If not, do you have at least one enemy? Good. Invite him or her over for coffee and ask for an honest opinion about your strengths and weaknesses. You will be forever grateful you did.
Hindsight Bias – WHY YOU SHOULD KEEP A DIARY
Overconfidence Effect – WHY YOU SYSTEMATICALLY OVERESTIMATE YOUR KNOWLEDGE AND ABILITIES
Not-Invented-Here Syndrome – WHY YOU CAN’T BEAT HOME-MADE
Survivorship Bias – WHY YOU SHOULD VISIT CEMETERIES
Beginner’s Luck – BE WARY WHEN THINGS GET OFF TO A GREAT START
Cognitive Dissonance – SWEET LITTLE LIES
Forer Effect – HOW TO EXPOSE A CHARLATAN
Introspection Illusion – BE YOUR OWN HERETIC
Cherry-picking – DRAWING THE BULL’S-EYE AROUND THE ARROW
The above article is from the book The Art of Thinking Clearly by Rolf Dobelli. The article is only for educational and informative purposes to explain and understand cognitive biases. It is a great book, definitely worth a read!